GENERAL

Office Depot, Inc., together with our subsidiaries, is a global supplier of office products and services. We sell to consumers and businesses of all sizes through our three segments (or "Divisions"): North American Retail Division, North American Business Solutions Division, and International Division.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide information to assist in better understanding and evaluating our financial condition and results of operations. We recommend that you read this MD&A in conjunction with our condensed consolidated financial statements and the notes to those statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our 2008 Annual Report on Form 10-K (the "2008 Form 10-K"), filed with the U.S. Securities and Exchange Commission (the "SEC").

This MD&A contains significant amounts of forward-looking information. Without limitation, when we use the words "believe," "estimate," "plan," "expect," "intend," "anticipate," "continue," "may," "project," "probably," "should," "could," "will" and similar expressions in this Quarterly Report on Form 10-Q, we are identifying forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Our discussion of Risk Factors, found in Item 1A of this Form 10-Q and our 2008 Form 10-K, and Forward-Looking Statements, found immediately following the MD&A in our 2008 Form 10-K, apply to these forward-looking statements.

RESULTS OF OPERATIONS

OVERVIEW

A summary of factors important to understanding the results for the third quarter of 2009 is provided below and further discussed in the narrative that follows this overview.

• Third quarter sales decreased 17% to $3 billion when compared to the third quarter of 2008. Sales in North America were down 18%, and International sales decreased 16% in U.S. dollars and 9% in local currencies. North American Retail Division comparable store sales decreased 14% for the quarter. The change in exchange rates from the third quarter of 2008 unfavorably impacted sales reported in U.S. dollars by approximately $70 million.

• Gross profit totaled $860 million in the third quarter of 2009, down 16% from the same period in 2008. This decline is attributable to lower sales volume, partially offset by lower charges for shrink and inventory valuation.

• As part of our previously announced strategic reviews, we recorded $40 million of pre-tax charges in the third quarter of 2009 and $5 million of charges in the third quarter of 2008 (the "Charges"). Implementation of the related activities during the quarter resulted in charges primarily for lease accruals and severance expenses.

• Total operating expenses were down 12% compared to the third quarter of 2008. This decrease primarily reflects lower payroll and advertising expenses as well as reductions in distribution costs and fixed asset impairments. These decreases were partially offset by the increase in Charges from the third quarter of 2008.

• During the third quarter of 2009, we recorded a non-cash tax expense to establish valuation allowances on deferred tax assets of $321.6 million ($1.17 per share) and reversed $39.0 million of tax benefits recognized during the first half of 2009 because of the uncertainty of future realizability of these assets. The reversal of tax benefits previously recognized negatively impacted third quarter earnings per share by $0.14, of which $0.08 is associated with the Charges recorded during the first half of 2009.

• We reported a loss available to common shareholders of $550 million for the year-to-date 2009 period compared to income available to common shareholders of $60 million in the same period of 2008, and we reported a diluted loss per share of $2.02 for the year-to-date 2009 period versus diluted earnings per share of $0.22 in the same period a year ago. In the year-to-date 2009 period, after-tax Charges negatively impacted earnings per share by $0.64. After-tax Charges negatively impacted earnings per share by $0.10 for the year-to-date 2008 period.

• On June 23, 2009, we issued $350 million of redeemable preferred stock and received cash, net of fees paid, of approximately $325 million. During the third quarter of 2009, we accrued dividends on the redeemable preferred stock totaling approximately $15 million, measured at fair value.

Charges and Division Results

Charges

During the fourth quarter of 2008, we performed an internal review of assets and processes with the goal of positioning the company to respond to the continued degradation in the global economy and to position the company for the economy's eventual improvement. The results of that internal review led to decisions to close underperforming stores, close certain distribution facilities, exit certain businesses, write off certain assets that were not seen as providing sufficient future benefit, and undertake certain actions to improve liquidity. The review has been updated throughout 2009 and all activities associated with the planned actions are currently expected to be completed by the end of 2009. Expenses associated with future activities will be recognized as the individual plans are implemented and the related accounting recognition criteria are met. We currently estimate Charges to be recognized during the fourth quarter of 2009 to be approximately $60 million, bringing our estimate of 2009 total Charges to approximately $255 million. Accretion on discounted long-term accruals such as lease obligations, is projected to be $15 million for 2010 and declining amounts in subsequent periods. This expense will be included in store and warehouse operating and selling expenses and recognized at the corporate level, outside of Division operating profit. Positive and negative adjustments to these accrued balances may continue to impact corporate results in future periods. As with any estimate, the timing and amounts may change when projects are implemented and such changes may be significant. Also, changes in foreign currency exchange rates will have an impact on amounts reported in U.S. dollars related to foreign operations. Charges recognized in the third quarter and year-to-date 2008 periods related to a previous business review program.

Our measurement of Division operating profit excludes the Charges because they are evaluated internally at the corporate level. The Charges recognized during the third quarter and year-to-date 2009 and 2008 periods are included in the following lines in our Condensed Consolidated Statement of Operations.

(In millions)                                          Third Quarter        Year-to-Date
                                                       2009      2008      2009      2008
Cost of goods sold and occupancy costs                $    1     $  -     $   11     $   -
Store and warehouse operating and selling expenses        34        4        160        24
General and administrative expenses                        5        1         24         8

Total Charges                                         $   40     $  5     $  195     $  32

For additional information on the Charges, see Note C.

Other

The portion of General and Administrative ("G&A") expenses considered directly or closely related to unit activity is included in the measurement of Division operating profit. Other companies may charge more or less G&A expenses to their divisions, and our results therefore may not be comparable to similarly titled measures used by some other entities. Our measure of Division operating profit should not be considered as an alternative to operating income or net earnings determined in accordance with accounting principles generally accepted in the United States of America.

We have prepared our financial statements in each period based on information available at the time, however, changes in estimates may impact our financial statements in future periods. For additional information on our accounting estimates, see Critical Accounting Policies in our 2008 Form 10-K.

North American Retail Division



                                       Third Quarter               Year-to-Date
     (Dollars in millions)          2009          2008          2009          2008

     Sales                        $ 1,288.3     $ 1,578.5     $ 3,850.7     $ 4,725.0
     % change                         (18)%         (11)%         (19)%          (8)%

     Division operating profit    $    35.1     $    11.9     $   103.4     $    90.0
     % of sales                        2.7%          0.8%          2.7%          1.9%

Third quarter sales in the North American Retail Division were $1.3 billion, down 18% from the prior year, due in part to having 117 fewer stores open in the third quarter of 2009 versus the prior year period. Comparable store sales in the 1,144 stores in the U.S. and Canada that have been open for more than one year decreased 14% for the quarter and 16% for year to date 2009. While transaction counts were down in the third quarter of 2009 compared to the same period last year, a drop in average order value was the greater contributor to our sales decline. Consistent with previous periods, the overall decrease in sales was driven by macroeconomic factors as consumers and small business customers continued to curtail their spending. Additionally, our commitment to proactively reduce promotions in select categories resulted in lower sales compared to the third quarter of 2008. Within each of our three major product categories of supplies, technology and furniture, we experienced a sales decline compared to the third quarter of 2008. The negative comparable store sales continue to be driven by fewer sales of higher priced, discretionary categories in furniture and technology. Also, as a result of many schools starting later in 2009 than in 2008, our Back-to-School strategy of delaying promotional activity until key purchasing weeks lowered our comparable store sales, however, this strategy allowed us to deliver overall improved profitability for this important season. Geographically, California and Florida continued to produce the weakest comparable store sales trends for the third quarter and our best performing markets were Canada, the Northeast and the Midwest.

The North American Retail Division reported operating profit of approximately $35 million in the third quarter of 2009, compared to $12 million in the same period of the prior year. On a year to date basis, Division operating profit was approximately $103 million in 2009 compared to $90 million in 2008. This measure of operating performance is consistent with the internal reporting of results used to manage the business and allocate resources and does not include charges associated with the strategic decisions made as part of the internal review initiated during the fourth quarter of 2008. Please see Charges discussion in the MD&A Overview section above.

The improvement in Division operating profit for the third quarter of 2009 was driven by a continued improvement in product margins and reduced operating expenses, including lower depreciation as a result of fixed asset impairments recorded during the second half of 2008. Other factors contributing to the increase in Division operating profit were lower charges for asset impairments and a comparative benefit from closing the underperforming stores identified as part of the strategic review we initiated in the fourth quarter of 2008. These positive factors were partially offset by the

unfavorable impact our sales volume decline had on gross margin and operating expenses (the "flow through" impact). The factors discussed for the third quarter results are largely the same factors impacting year to date 2009 compared to year to date 2008.

At the end of the third quarter of 2009, Office Depot operated 1,158 office products stores throughout the U.S. and Canada. We opened one store, closed one store and relocated three stores during the period. We closed 113 stores during year to date 2009, of which 112 were closed as part of the strategic review initiated in the fourth quarter of 2008. We plan to open ten or fewer new stores over the remainder of 2009.

Our inventory per store at the end of the third quarter of 2009 was approximately $669,000, down 14% from the end of the third quarter of 2008. Average inventory per store in the third quarter of 2009 was $723,000, down 19% from the same period last year. These declines are a result of improved inventory management and our reduced exposure to higher dollar value inventory items. The integration of our North American Retail and Business Solutions supply chains will make it difficult to accurately calculate inventory per store data. Therefore, we plan to stop reporting this measure in 2010.

As we look at the fourth quarter, we are cautiously optimistic about sales. Customer spending remains tight, and we believe that the upcoming holiday season will be very competitive. We expect Division operating results to be better year-over-year, excluding the negative impact of asset impairment charges recognized in the fourth quarter of 2008.

North American Business Solutions Division



                                       Third Quarter              Year-to-Date
      (Dollars in millions)         2009         2008          2009          2008

      Sales                        $ 880.4     $ 1,054.2     $ 2,662.6     $ 3,222.3
      % change                       (16)%         (10)%         (17)%          (7)%

      Division operating profit    $  21.3     $    39.0     $    76.9     $   147.9
      % of sales                      2.4%          3.7%          2.9%          4.6%

Third quarter sales in the North American Business Solutions Division were $880 million, down 16% compared to the third quarter of 2008. This decline was principally driven by a decrease in the number of customer transactions. In our large, national accounts, we continued to experience extremely aggressive pricing from some of our competitors. On a product category basis, the Division experienced continued weakness in durables such as furniture, technology and peripherals, as customers delayed their purchases of these products in favor of consumables like paper, ink and toner. Our expectation is that the purchasing trends will continue in the near term. In the third quarter of 2009, the sales decline in California worsened and continued to exceed the overall rate of decline for the Division in the period, however, the sales decline in Florida was slightly less than the overall rate of decline for the Division. These two states continue to represent approximately 30% of Division revenue and about one-third of the revenue decline from the third quarter of 2008.

The North American Business Solutions Division reported operating profit of approximately $21 million in the third quarter of 2009, compared to $39 million in the same period of the prior year. This decrease was driven by the flow through impact of lower sales levels as well as lower product margins, reflecting a less profitable product mix and cost increases that could not be passed on to our customers. Reductions in operating expenses, including lower advertising costs, partially offset these negative factors. On a year to date basis, Division operating profit totaled $77 million in 2009 compared to $148 million in 2008. The factors discussed for the third quarter results are largely the same factors impacting year to date 2009 compared to year to date 2008.

As we look at the fourth quarter, we expect the year-over-year sales decline to improve as we compare against our weak sales results from the fourth quarter of 2008. In addition, we anticipate that Division operating profit in the fourth quarter will reflect an improvement over the fourth quarter of 2008 as a result of the many initiatives that we have undertaken to optimize our profitability.

International Division



                                          Third Quarter               Year-to-Date
  (Dollars in millions)                 2009         2008          2009          2008

  Sales                               $  860.6     $ 1,025.1     $ 2,565.2     $ 3,277.6
  % change                               (16)%            3%         (22)%            7%
  % change in local currency sales        (9)%          (2)%         (10)%          (1)%

  Division operating profit           $   34.2     $    35.9     $    55.8     $   147.3
  % of sales                              4.0%          3.5%          2.2%          4.5%

The International Division reported third quarter sales of $861 million, a decrease of 16% in U.S. dollars. Local currency sales decreased 9%, with all but a few countries in which we operate reporting sales declines compared to the third quarter of 2008. The U.K., France, and Germany accounted for more than half of the overall decrease in local currency sales. Similar to North America, concerns regarding high unemployment levels, reductions in workforce, tight credit conditions and the global recession are having a negative effect on both business investment and office supply expenditures. Although we are becoming more effective at retaining our higher value customers, sales in the direct business declined 10% in local currency because of continued softness in higher priced items such as furniture and technology. Sales in the contract business declined 9% in local currency as larger businesses have reduced their workforces and their discretionary spending on office supplies. Additionally, the International Division's sales were reduced as a result of our previously announced plans to exit the retail business in Japan.

The International Division reported an operating profit of approximately $34 million in the third quarter of 2009, compared to $36 million in the same period of the prior year. Division operating profit for year to date 2009 was $56 million, compared to $147 million for the same period of 2008. This measure of operating performance is consistent with the internal reporting of results used to manage the business and allocate resources and does not include charges associated with the strategic decisions made as part of the internal review initiated during the fourth quarter of 2008. Please see Charges discussion in the MD&A Overview section above.

The change in Division operating profit for the third quarter of 2009 resulted as the flow through impact of lower sales levels was almost completely offset by lower operating expenses. These factors are largely the same factors impacting year to date 2009 compared to year to date 2008. Additionally, the curtailment of a U.K. pension plan resulted in a $13 million gain in the second quarter of 2008, contributing to the decrease in the year to date period. The change in exchange rates from the corresponding prior year period unfavorably impacted operating profit in U.S. dollars by approximately $3 million for the quarter and $12 million for the year-to-date period, compared to the same periods in 2008.

Looking forward, economic data indicates that the recovery has begun in Asia and Europe but our customers are still reducing costs and finding ways to decrease overall spending. Therefore, we do not anticipate a significant change in demand in the near future. As a result of our sales growth and cost reduction initiatives, we are optimistic about our fourth quarter performance. We expect that our fourth quarter revenue decline in local currency will be less than the third quarter of 2009, and we expect Division operating profit to be slightly lower than the third quarter of 2009.

Corporate and Other

General and Administrative Expenses: Total G&A increased slightly from $176 million in the third quarter of 2008 to $178 million in the third quarter of 2009. As noted above, the portion of G&A expenses considered directly or closely related to unit activity is included in the measurement of Division operating profit above. The remainder of the total G&A expenses are considered corporate expenses. A breakdown of G&A is provided in the following table:

                                 Third Quarter               Year-to-Date
           (In millions)      2009          2008          2009          2008

           Division G&A     $    89.2     $    97.3     $   268.2     $   292.1
           Corporate G&A         88.3          79.1         256.1         258.0

           Total G&A        $   177.5     $   176.4     $   524.3     $   550.1

Corporate G&A includes Charges of approximately $5 million in the third quarter of 2009 and $1 million in the third quarter of 2008. After considering the impact of Charges recognized in the period, Corporate G&A increased by approximately $6 million during the third quarter of 2009 compared to the same period of 2008 primarily reflecting increased depreciation expense and performance-based variable pay. The increase in depreciation expense resulted primarily from the capital lease associated with our new corporate campus as well as the company's implementation of a new enterprise software system which was placed in service at the beginning of the third quarter of 2009.

Corporate G&A includes Charges of $24 million for the year to date 2009 period and $8 million for the same period of 2008. After considering the impact of Charges recognized in the period, Corporate G&A fell by approximately $18 million during year-to-date 2009 compared to the same period of 2008. This decrease primarily reflects reduced legal and professional fees and lower payroll costs, which were partially offset by increased performance-based pay and depreciation expense. Additionally, during the second quarter of 2008, the company initiated a voluntary exit incentive program for certain employees that resulted in a charge of approximately $6 million for severance expenses in the year-to-date 2008 period.

Corporate G&A for the fourth quarter of 2009 will include approximately $9 million from the effect of accelerated vesting of certain employee stock grants following approval of the redeemable preferred stock issuance. Also, change in control features in certain employment contracts could result in additional G&A expenses in future periods if covered executives' are involuntarily, or in certain cases, voluntarily terminated.

During 2006, we sold our former corporate campus and leased the facility back as construction of a new facility was being completed. The amortization of the deferred gain on the sale recognized during year to date 2008 largely offset the rent expense incurred during the period.

Other income (expense): The increase in net interest costs in the third quarter was driven by increased interest expense, which resulted from the amortization of debt issuance costs related to our asset based credit facility and the interest expense recognized on the capital lease associated with our new corporate campus. We also experienced lower levels of interest income and capitalized interest compared to the third quarter of 2008. Partially offsetting these unfavorable items was a reduction in interest expense on borrowings as we did not borrow under our asset based credit facility during the third quarter of 2009. In addition to these factors, higher borrowing rates and lower investment rates contributed to the increase in net interest costs for the year to date 2009 period.

The increase in net miscellaneous income in the third quarter primarily relates to foreign currency transactions. During the third quarter of 2009, we recognized foreign currency gains compared to foreign currency losses in the third quarter of 2008. Partially offsetting this improvement were lower equity in earnings from our joint venture in Mexico, Office Depot de Mexico, which resulted primarily from changes in foreign currency exchange rates. In addition to these factors, the change in the year to date amount also reflects the comparison to a $5 million gain recognized in the first quarter of 2008 from the sale of a non-operating asset.

Other - Income Taxes: During the third quarter of 2009, the company recognized income tax expense of $358.4 million. The expense primarily reflects valuation allowances totaling $321.6 million, with $279.1 million related to domestic deferred tax assets and $42.5 million related to foreign deferred tax assets. Additionally, the related adjustment to the projected full year 2009 effective tax rate resulted in the reversal of $39.0 million of benefits recognized during the first half of the year. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strong negative evidence in that evaluation. Because of the downturn in our performance during this recessionary period, as well as the significant restructuring activities and charges we have taken in response, during the third quarter of 2009 our domestic cumulative pre-tax results for the past 36 months became negative. Additionally, certain European operations are projected to reach cumulative 36 month losses before the end of 2009 and there is greater uncertainty about the pace of economic recovery in that jurisdiction compared to the domestic outlook. While we have seen signs that cause us to be optimistic about the future, we are likely to be adding to those accumulated pre-tax losses in both jurisdictions before the projected return to profitability of these operations. We expect to be able to use some of these assets to reduce taxes payable in coming quarters or by carrying back to prior years. Further, we anticipate being able to remove the valuation allowances in future periods when positive evidence outweighs the negative evidence from the relevant look-back period, but the timing and amounts by jurisdiction currently cannot be reliably estimated. The short-term consequence of being unable to record deferred tax benefits will cause our effective tax rate to be volatile, possibly changing significantly from period to period. We anticipate an effective tax rate of . . .